China Real Estate Is Unstoppable

Beijing has thrown everything plus the kitchen sink at China's real estate to keep it from overheating. But a new mini-QE program at the central bank, coupled with the hundreds of millions of dollars majority shareholders have made in real estate this year means there's simply tons of money floating around China right now.

Hong Kong housing equity started off the month of May hitting a fresh one-year high. It also has Shanghai housing prices on the upswing despite a sales decline. And Chinese conglomerates continue shopping the world for real estate. Boston was the latest shopping spree for two of China's biggest insurers.

On-again, off-again housing restrictions have been lifted, for the most part. Despite a slower growing economy, there is a lot of money locked up in China looking for a place to invest. For mainlanders, that place has been the Hong Kong stock exchange. The exchange was opened to mainlanderes this year via the Shanghai-Hong Kong Stock Connect. One beneficiary of the mainland move into Hong Kong? Shares of real estate developers.

The HKD$4 billion
China Properties Group (HKG: 1838) is up 35.63% in the last 12 months, beating the
MSCI Hong Kong Index. If that doesn't seem like much, how does a 98.3% gain year-to-date as of May 4 sound?

They're not alone. HKR International (HKG: 0480) is up 47.81% over the last year, and is outperforming the Hang Seng Index year-to-date. Pacific Century Premium (HKG: 0432), which also has development projects spread out in Asia, including Japan and in Indonesia, is up 48.7% year-to-date and 42% over the last 12 months.

Wang Jianlin, CEO of Dalian Wanda Commercial Properties seen arriving at the Hong Kong Stock Exchange on December 23, 2014 for his real estate firm's IPO. His share values in Dalian jumped 33.9% year-to-date. Investors are following the money and a lot of it is going back into real estate. (Photo by Isaac Lawrence/AFP/Getty Images)

Then there are the fundamentals.

In Shanghai, sales of new homes were above the 300,000-square-meter mark for the second consecutive week. The 300,000 figure is a magic figure in Shanghai real estate. Anything above that is good and signals buyers in the market. Anything below that means money is tight.

Beijing is doing what it can to curb property speculation. Chinese tend to buy houses for investment. New residential property sales actually fell 13.2% over the last week of April to 325,200 square meters according to Shanghai Uwin Real Estate Information Services. But despite the decline, the 300k-plus mark suggests buying momentum exists, said Huang Zhijian, chief analyst at Uwin in a report released on Monday. "Sales have notably outnumbered supply for two straight weeks which should be a quite good sign for the market," Zhijian said.

Commercial development is also on the rise.

Chinese cities account for half of the top 20 most active shopping center markets globally with a total of 5.7 million square meters of shopping center space built just last year, according to a report released today by global real estate consultancy CBRE.

Globally, more than 39 million square meters of malls were built in 2014. Over 32 million square meters were developed in Asia Pacific. And China accounted for a little over 60% of the region's pipeline, CBRE said.

Last month, China Life Insurance Company and Ping An Insurance Company announced that they are co-investors in a Boston waterfront project being built by Tishman Speyer Properties, one of the world’s leading developers. As China allows for companies to invest more of its wealth overseas in an effort to encourage asset diversification, real estate in stable economies such as Canada, the U.S., Australia and Europe are expected to attract billions of dollars in China real estate transactions.

"Chinese companies that are cash rich and overexposed to the local market want to preserve their wealth. It’s important to them to have a stable net asset on their balance sheet,” says Marlen Kruzhkov, an attorney with Gusrae Kaplan in New York.

For the individual Chinese looking to diversify too, Hong Kong might be as good as it gets. Most Chinese are not allowed to invest abroad. Investing in Hong Kong is a relatively new phenomenon.

The iShares Hong Kong ETF has momentum on its side. Judging by the relative strength index, it's approaching overbought status.

The iShares MSCI Hong Kong (EWH) exchange traded fund is up 18% year-to-date, but still trailing the iShares FTSE China (FXI) ETF and the Deutsche X-Trackers China A-Shares (ASHR) ETF. Is there more room to go in these housing heavy markets?

"We can debate whether equity in China is overvalued, but I'm pretty sure it is going higher," says Krishna Memani, CIO of OppenheimerFunds in New York. "A lot of money will end up in asset markets like equities and bonds."

I've spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes.